Hill v PMS Enterprises Limited t/a A2Z Cars - Reference No. MVD 288/2017 [2017] NZMVDT 195 (29 November 2017)

Last Updated: 23 March 2018

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
		[2017] NZMVDT 195 Reference No. MVD 288/2017
	IN THE MATTER	of the Motor Vehicle Sales Act 2003
	AND
	IN THE MATTER	of a dispute
	BETWEEN	TERRENCE EDGAR HILL
		Purchaser
	AND	PMS ENTERPRISES LIMITED T/A A2Z CARS
		Trader
MEMBERS OF TRIBUNAL
B R Carter, Barrister – Adjudicator
S Haynes, Assessor
HEARING at Auckland on 14 November 2017
DATE OF DECISION 29 November 2017
APPEARANCES
Mr T E Hill, Purchaser Ms S Smith, Witness for the Trader
Mr P Madan, for the Trader Mr M Wade, Witness for the Trader

ORDERS

1. Mr Hill’s application to reject the vehicle is upheld.
2. The collateral credit agreement between Mr Hill and Finance Now Limited shall vest in PMS Enterprises Limited as from the date of this decision and PMS Enterprises Limited shall, as from that date, discharge all of Mr Hill’s obligations under the collateral credit agreement.

100. PMS Enterprises Limited shall, within 10 working days of the date of this decision, pay Mr Hill:
     • (a) the capital component of all payments made by Mr Hill under the collateral credit agreement as from the date the collateral credit agreement was entered into, until 2 September 2017;
     • (b) the total amount of all capital and interest payments made by Mr Hill under the collateral credit agreement from 3 September 2017 to the date of this decision; and
     • (c) $250, being the deposit paid by Mr Hill.

4. Upon receipt of the amount in Order C, Mr Hill shall immediately make the vehicle available for PMS Enterprises Limited to uplift.

DECISION

[1] The Consumer Guarantees Act 1993 (“the Act”) applies to this transaction. Although Mr Hill acquired the vehicle, in part at least, for use in his business, the parties have not validly contracted out of the Act.
[2] The vehicle has significant structural corrosion and its wheels have been fitted using aftermarket wheel spacers that do not comply with warrant of fitness requirements. Both faults existed when the vehicle was sold to Mr Hill and both faults breach the acceptable quality guarantee in s 6 of the Act.
[3] The corrosion is a failure of a substantial character for the purposes of s 21 of the Act. Accordingly, Mr Hill is entitled to reject the vehicle under s 18(3)(a) of the Act.
[4] Mr Hill has not lost the right to reject the vehicle under s 20 of the Act. Although he transferred the vehicle into the name of his partner for a period of time, he retained control of the vehicle, continued to use it, and continued to make loan repayments for the vehicle. He did not dispose of the vehicle for the purposes of s 20 of the Act.

REASONS

Introduction

[5] On 7 July 2016, Terrence Hill purchased a 1994 Toyota Hiace, registration number YZ4571, for $5,250 from PMS Enterprises Limited, trading as A2Z Cars. The vehicle had an odometer reading of 254,000 kms at the time of sale.
[6] In December 2016, Mr Hill rejected the vehicle because the vehicle had failed a warrant of fitness inspection due to structural corrosion and aftermarket wheel spacers that do not comply with warrant of fitness requirements without low volume vehicle (“LVV”) certification. PMS Enterprises persuaded Mr Hill to let it repair the faults with the vehicle.
[7] In June 2017, the vehicle failed its next warrant of fitness inspection, due to structural corrosion and wheel spacers that did not have LVV certification. In July 2017, Mr Hill contacted PMS Enterprises asking for the vehicle to be repaired, or alternatively for a refund of the purchase price.
[8] On 2 September 2017, Mr Hill applied to the Tribunal seeking to reject the vehicle.
[9] PMS Enterprises has now offered to repair the vehicle’s faults, but does not consider that Mr Hill is entitled to reject the vehicle. PMS Enterprises also notes that Mr Hill acquired the vehicle for use in a business that he established with this partner.
[10] It has also become apparent that, at some time between July and December 2016, Mr Hill transferred the vehicle to his partner Steph Smith, as the vehicle was to be used in a business operated by Ms Smith. The vehicle has since been transferred back into Mr Hill’s name because the business did not survive.

The Issues

[11] The issues requiring consideration in this case are:

• (a) Have the parties contracted out of the Act?
• (b) Do the vehicle’s faults breach the guarantee of acceptable quality in s 6 of the Act?
• (c) Is the corrosion a failure of a substantial character entitling Mr Hill to reject the vehicle?
• (d) Has Mr Hill lost the right to reject the vehicle by transferring it to Ms Smith?
• (e) What remedy is Mr Hill entitled to under the Act?

Have the parties contracted out of the Act?

[12] Although it was not the main thrust of its defence, PMS Enterprises suggested that the Act may not apply to this transaction, because Mr Hill used the vehicle as part of a business operated by Ms Smith.
[13] Parties who are in trade may contract out of the Act, provided the provisions in s 43(2) of the Act, which sets out the rules for contracting out of the Act, are complied with:

“43 No contracting out except for business transactions

(2) However, despite subsection (1), parties to an agreement may include a provision in their agreement to the effect that the provisions of this Act will not apply to that agreement, provided that—

(a) the agreement is in writing; and

(b) the goods or services are, or (in connection only with the guarantee of acceptable quality in section 7A) the gas or electricity is, supplied and acquired in trade; and

(c) all parties to the agreement—

(i) are in trade; and

(ii) agree to contract out of the provisions of this Act; and

(d) it is fair and reasonable that the parties are bound by the provision in the agreement.

(2A) If, in any case, a court is required to decide what is fair and reasonable for the purposes of subsection (2)(d), the court must take account of all the circumstances of the agreement, including—

(a) the subject matter of the agreement; and

(b) the value of the goods, services, gas, or electricity (as relevant); and

(c) the respective bargaining power of the parties, including—

(i) the extent to which a party was able to negotiate the terms of the agreement; and

(ii) whether a party was required to either accept or reject the agreement on the terms and conditions presented by another party; and

(d) whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.”

[14] This agreement complies with many of the requirements in s 43(2) of the Act. For example:

• (a) The agreement was in writing – as evidenced by the Vehicle Offer and Sale Agreement dated 7 July 2016 (“the VOSA”).
• (b) The vehicle was supplied and acquired in trade. PMS Enterprises is a motor vehicle dealer. Although Mr Hill purchased the vehicle primarily for personal use, he also intended to use the vehicle in a sound and lighting business operated by Ms Smith.
• (c) The parties have also agreed to contract out of the Act. The VOSA contains a provision under which the parties agree that the Act will not apply to any goods acquired for a business purpose.

[15] However, these factors are not conclusive in determining whether the parties have validly agreed on contracting out of the Act. Section 43(2)(d) of the Act requires that I must also consider whether, in the circumstances of this case, it is fair and reasonable that the parties should contract out of the Act.

Is it fair and reasonable that the parties are bound by the exclusion clause?

[16] When determining what is fair and reasonable for the purposes of s 43(2)(d) of the Act, I must consider the criteria set out in s 43(2A) of the Act.

The subject matter of the agreement

[17] The subject matter of the agreement is a 1994 Toyota Hiace. This vehicle is of a kind ordinarily acquired for personal, domestic or household use. Mr Hill acquired the vehicle primarily for his personal use, although he had a secondary purpose of using the vehicle in the sound and lighting business.

The value of the goods

[18] Mr Hill paid $5,250 for the vehicle. I am satisfied that this was a significant amount of money for Mr Hill. He borrowed $5,000 of the purchase price from Finance Now.

The respective bargaining power of the parties

[19] I am satisfied that there was an imbalance in the bargaining power between PMS Enterprises and Mr Hill. The agreement was in PMS Enterprises’ standard form, and its terms do not appear to have been subject to negotiation. Further, PMS Enterprises is a registered motor vehicle dealer, whereas Mr Hill does not have the same experience in dealing with, or negotiating, motor vehicle sale and purchase contracts.

Whether the parties received legal advice

[20] Neither party sought legal advice, although I acknowledge that it would be unusual for a buyer or seller to seek legal advice before purchasing a $5,250 motor vehicle. However, it is relevant to my assessment of fairness and reasonableness that the purchaser received no advice, either from a lawyer or the trader, on the existence and effect of the exclusion clause.
[21] PMS Enterprises knew of the existence and effect of the exclusion clause. It is contained in the VOSA, which is the trader’s own standard form agreement. Mr Hill did not have this extent of familiarity with the content of the VOSA.
[22] I consider that, where there are terms and conditions in the VOSA that seek to significantly limit the protections a consumer would otherwise have under the Act, the trader runs a risk that those clauses will not be upheld where the existence and effect of those terms and conditions are not clearly explained to consumers. The existence and effect of those terms and conditions were not explained to Mr Hill.
[23] Ultimately, the Act is consumer protection legislation. Mr Hill is a consumer – it purchased a vehicle of a kind ordinarily acquired for personal, domestic or household use. Given the imbalance in the respective bargaining power of the parties and the absence of clear evidence that Mr Hill has knowingly agreed to contract out of the provisions of the Act, Mr Hill is entitled to the protections contained within the Act. I am therefore satisfied that the parties have not validly agreed to contract out of the Act and that the protections of the Act apply in this case.

Does the vehicle have faults that breaches the acceptable quality guarantee?

[24] Section 6 of the Act imposes on suppliers and manufacturers of consumer goods "a guarantee that the goods are of acceptable quality." Section 2 of the Act defines "goods" as including vehicles.
[25] The expression "acceptable quality" is defined in s 7 as follows:

“7 Meaning of acceptable quality

(1) For the purposes of section 6, goods are of acceptable quality if they are as—

(a) fit for all the purposes for which goods of the type in question are commonly supplied; and

(b) acceptable in appearance and finish; and

(c) free from minor defects; and

(d) safe; and

(e) durable,—

as a reasonable consumer fully acquainted with the state and condition of the goods, including any hidden defects, would regard as acceptable, having regard to—

(f) the nature of the goods:

(g) the price (where relevant):

(h) any statements made about the goods on any packaging or label on the goods:

(ha) the nature of the supplier and the context in which the supplier supplies the goods:

(i) any representation made about the goods by the supplier or the manufacturer:

(j) all other relevant circumstances of the supply of the goods.

(2) Where any defects in goods have been specifically drawn to the consumer's attention before he or she agreed to the supply, then notwithstanding that a reasonable consumer may not have regarded the goods as acceptable with those defects, the goods will not fail to comply with the guarantee as to acceptable quality by reason only of those defects.

(3) Where goods are displayed for sale or hire, the defects that are to be treated as having been specifically drawn to the consumer's attention for the purposes of subsection (2) are those disclosed on a written notice displayed with the goods.

(4) Goods will not fail to comply with the guarantee of acceptable quality if—

(a) the goods have been used in a manner, or to an extent which is inconsistent with the manner or extent of use that a reasonable consumer would expect to obtain from the goods; and

(b) the goods would have complied with the guarantee of acceptable quality if they had not been used in that manner or to that extent.

(5) A reference in subsections (2) and (3) to a defect means any failure of the goods to comply with the guarantee of acceptable quality.”

[26] In considering whether or not goods meet the guarantee of acceptable quality, the Tribunal must consider the quality elements as set out in s 7(1)(a)-(e) of the Act as modified by the factors set out in s 7(1)(f)-(j), from the perspective of a “reasonable consumer”. The test is an objective one; it is not a view of those factors from Mr Hill’s subjective perspective.

The vehicle has structural corrosion and non-compliant wheel spacers

[27] The evidence provided by Mr Hill proves that the vehicle has structural corrosion and non-compliant wheel spacers.
[28] In December 2016, Mr Hill took the vehicle to Affordable Auto Services for a warrant of fitness inspection. The vehicle failed that inspection due, in part, to significant structural corrosion and aftermarket wheel spacers that do not comply with warrant of fitness requirements without LVV certification.
[29] Mr Hill attempted to reject the vehicle, but PMS Enterprises persuaded him to let it perform repairs. In late December 2016 or early January 2017, Yvapa Panel & Paint performed corrosion repairs, and invoiced PMS Enterprises $805.02 for that work. On 11 January 2017, Fairfax Autostop Company Limited issued a warrant of fitness for the vehicle.
[30] In June 2017, Mr Hill took the vehicle back to Affordable Auto Services for its next warrant of fitness inspection. The vehicle again failed the warrant of fitness inspection due to structural corrosion and wheel spacers that did not have LVV certification.
[31] Mr Hill complained to the New Zealand Transport Agency (“NZTA”), alleging that the vehicle should not have passed the warrant of fitness inspection performed by Fairfax Autostop in January 2017, given the corrosion that was present in the vehicle and the unlawful wheel spacers. NZTA investigated Mr Hill’s complaint, and made the following findings:

• (a) The front wheels are fitted with aftermarket 5 spoke alloy wheels that have been fitted using wheel spacers between the hub and wheel. The wheels require LVV certification, and there is no evidence of LVV certification being obtained.
• (b) There is visual evidence of corrosion damage, which NZTA considered would have been evident when Fairfax Autostop performed its warrant of fitness inspection in January 2017, in the following areas:
  1. Right front driver’s floor.
  2. Front floor at join to slam panel.
  100. Left front passenger floor.
  4. Left and right rear sliding door near the door latch striker.
  5. Left rear sliding door top and bottom hinge runner.
  6. Left and right rear cant rail.
  7. Left and right rear window surround.
  8. Right rear sliding door sill/
  9. Rear floor, near the fuel tank and tow bar mountings.
• (c) NZTA also considered that there was evidence of poor repairs in the left rear sliding door lower “c pillar”.

[32] Mr Hill has also provided photographs of the corrosion affected areas of the vehicle.
[33] I am satisfied that this evidence establishes that the vehicle has structural corrosion and that the wheel spacers do not comply with warrant of fitness requirements.

The faults are likely to have existed when the vehicle was sold to Mr Hill

[34] I am also satisfied that those faults existed when the vehicle was sold to Mr Hill.
[35] The corrosion was first found five months after Mr Hill purchased the vehicle, when the vehicle was assessed by Affordable Auto Services in December 2016. Mr Haynes advises that much of this corrosion remains. Mr Haynes says that the second Affordable Auto Services warrant of fitness inspection and the subsequent NZTA investigation show that much of the corrosion that existed in December 2016 is still present in the vehicle.
[36] Mr Haynes also advises that the photographs of the corrosion provided by Mr Hill taken after NZTA had inspected the vehicle shows advanced corrosion, which in some areas has bubbled through the paintwork. Mr Haynes says that corrosion to this extent could not have developed during Mr Hill’s ownership and is highly likely to have been present when the vehicle was sold to Mr Hill.
[37] I am therefore satisfied that it is highly likely that the corrosion was present when this vehicle was sold to Mr Hill.
[38] Likewise, the vehicle’s non-compliant wheel spacers were present when the vehicle was first inspected by Affordable Auto Services. There was no evidence to suggest that Mr Hill has installed those wheel spacers.

The structural corrosion and non-compliant wheel spacers breach the acceptable quality guarantee

[39] Relevant to this case, under s 7 of the Act, vehicles are of acceptable quality if they are free of minor defects and as durable as a reasonable consumer would expect, taking account of factors such as the age, price and mileage of the vehicle.
[40] I am satisfied that this vehicle is not of acceptable quality. It was not free of minor defects. It had pre-existing structural corrosion and non-compliant wheel spacers. The vehicle has also not been nearly as durable as a reasonable consumer would expect. It failed a warrant of fitness inspection five months after purchase, due in part to corrosion and non-compliant wheel spacers, and then failed its next warrant of fitness inspection for the same reasons.
[41] In reaching this conclusion I acknowledge that this was an inexpensive 24-year-old vehicle that had travelled more than 250,000 kms at the time of sale. However, both faults have caused the vehicle to fail warrant of fitness inspections, and the corrosion will cost approximately $3,500 to repair. I consider that a reasonable consumer would not expect a vehicle of this price, age and mileage to have faults that would cause the vehicle to fail a warrant of fitness inspection and cost more than $3,500 to repair.

Is Mr Hill entitled to reject the vehicle?

[42] Mr Hill rejected the vehicle on 2 September 2017, when he filed his application to the Tribunal. Mr Hill claims that he is entitled to reject the vehicle under s 18(3)(a) of the Act because the corrosion amounts to a failure of a substantial character for the purposes of s 21 of the Act.
[43] Section 18 provides:

“18 Options against suppliers where goods do not comply with guarantees

(1) Where a consumer has a right of redress against the supplier in accordance with this Part in respect of the failure of any goods to comply with a guarantee, the consumer may exercise the following remedies.

(2) Where the failure can be remedied, the consumer may—

(a) require the supplier to remedy the failure within a reasonable time in accordance with section 19:

(b) where a supplier who has been required to remedy a failure refuses or neglects to do so, or does not succeed in doing so within a reasonable time,—

(i) have the failure remedied elsewhere and obtain from the supplier all reasonable costs incurred in having the failure remedied; or

(ii) subject to section 20, reject the goods in accordance with section 22.

(3) Where the failure cannot be remedied or is of a substantial character within the meaning of section 21, the consumer may—

(a) subject to section 20, reject the goods in accordance with section 22; or

(b) obtain from the supplier damages in compensation for any reduction in value of the goods below the price paid or payable by the consumer for the goods.

(4) In addition to the remedies set out in subsection (2) and subsection (3), he consumer may obtain from the supplier damages for any loss or damage to the consumer resulting from the failure (other than loss or damage through reduction in value of the goods) which was reasonably foreseeable as liable to result from the failure.”

Is the fault a failure of a substantial character?

[44] Under s 18(3) of the Act, Mr Hill may reject the vehicle if it has a fault that amounts to a failure of a substantial character. A failure of a substantial character is defined in s 21 of the Act:

“21 Failure of substantial character

For the purposes of section 18(3), a failure to comply with a guarantee is of a substantial character in any case where—

(a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or

(b) the goods depart in 1 or more significant respects from the description by which they were supplied or, where they were supplied by reference to a sample or demonstration model, from the sample or demonstration model; or

(c) the goods are substantially unfit for a purpose for which goods of the type in question are commonly supplied or, where section 8(1) applies, the goods are unfit for a particular purpose made known to the supplier or represented by the supplier to be a purpose for which the goods would be fit, and the goods cannot easily and within a reasonable time be remedied to make them fit for such purpose; or

(d) the goods are not of acceptable quality within the meaning of section 7 because they are unsafe.”

[45] Section 21(a) of the Act applies to this case. The question I must answer is whether the faults that this vehicle has, are such that a reasonable consumer, fully acquainted with the true nature and extent of the faults, would not have purchased the vehicle.
[46] I am satisfied that the structural corrosion in this vehicle is a failure of a substantial character. The vehicle is likely to have had significant structural corrosion when it was sold to Mr Hill. PMS Enterprises performed repairs on that corrosion and obtained a warrant of fitness for the vehicle. However, within six months the vehicle failed a further warrant of fitness inspection due to corrosion that was present at the time of the early warrant of fitness inspection.
[47] I consider that a reasonable consumer would not have paid $5,250 for a 24-year-old vehicle that had travelled 254,000 kms at the date of purchase if it knew that it had pre-existing structural corrosion that would cause it to fail a warrant of fitness inspection, and require repairs costing more than $3,500.

Has Mr Hill lost the right to reject the vehicle?

[48] At some stage between July and December 2016, Mr Hill transferred the vehicle into the name of Ms Smith. He did this as the vehicle was also to be used in a sound and lighting business operated by Ms Smith. It seems that Mr Hill thought he was required to do this so the vehicle could be used by the business. Mr Hill says that during this time he continued to use the vehicle for personal transport and he continued to make repayments against the collateral credit agreement.
[49] Ms Smith’s business did not thrive and, in December 2016, Mr Hill transferred the vehicle back into his own name.
[50] This transfer of the vehicle to Ms Smith raises a question as to whether Mr Hill has lost the right to reject the vehicle, because under s 20(1)(b) of the Act, Mr Hill has lost the right to reject the vehicle if he disposed of it.
[51] Section 20(1)(b) of the Act states:

20 Loss of right to reject goods

(1) The right to reject goods conferred by this Act shall not apply if—

...

(b) the goods have been disposed of by the consumer, or have been lost or destroyed while in the possession of a person other than the supplier or an agent of the supplier.

[52] While Mr Hill clearly transferred the vehicle to Ms Smith, I am satisfied that he did not dispose of the vehicle for the purposes of s 20(1)(b) of the Act. I consider that, for the purposes of s 20(1)(b) of the Act, a vehicle is disposed of if there has been a permanent transfer of possession from one person to another. In this case, the vehicle remained in Mr Hill’s possession, he continued to use the vehicle in the same manner he had used it when it was registered in his name and he continued to make repayments against the collateral credit agreement. Further, the arrangement with Ms Smith was clearly not intended to be permanent because, when it became apparent that the sound and lighting business was not sustainable, Mr Hill transferred the vehicle back into his own name.
[53] I am therefore satisfied that Mr Hill has not disposed of the vehicle, and that he has therefore not lost the right to reject the vehicle.

What remedy is Mr Hill entitled to under the Act?

[54] Under s 18(3)(a) of the Act, Mr Hill is entitled to reject the vehicle because the corrosion in the vehicle amounts to a failure of a substantial character.
[55] For the purposes of s 23A of the Act, I am satisfied that PMS Enterprises arranged or procured the collateral credit agreement and the agreement was entered into to enable Mr Hill to purchase the vehicle. Accordingly, under s 23A(2) of the Act, the Tribunal orders that the collateral credit agreement between Mr Hill and Finance Now Limited, shall vest in PMS Enterprises as from the date of this decision. PMS Enterprises shall, from that date, discharge all of Mr Hill’s obligations under the collateral credit agreement.
[56] PMS Enterprises Limited shall, within 10 working days of the date of this decision, pay Mr Hill:

• (a) the capital component of all payments made by Mr Hill under the collateral credit agreement as from the date the collateral credit agreement was entered into, until 2 September 2017;
• (b) the total amount of all capital and interest payments made by Mr Hill under the collateral credit agreement from 3 September 2017 to the date of this decision; and
• (c) $250, being the deposit paid by Mr Hill.

[57] Mr Hill shall then make the vehicle available for PMS Enterprises Limited to uplift.

DATED at AUCKLAND this 29th day of November 2017

B.R. Carter
Adjudicator